Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. […] The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit.— Alan Greenspan, 1966
BALTIMORE – That old rascal!
Before joining the feds, former Fed chief Alan “Bubbles” Greenspan was a strong proponent of gold and the gold standard.
He wrote clearly and forcefully about how it was necessary to restrain the Deep State and protect individual freedom.
Then he went to Washington and faced a fork in the tongue.
In one direction, lay honesty and integrity. In the other, lay power and glory.
Under the Bretton Woods monetary system, the U.S. promised foreign central banks that it would convert their dollars to gold at a fixed price of $35 an ounce.
This constrained the amount of dollars the U.S. could print to the amount of gold it had in its reserves.
A smart man, Greenspan quickly realized he could not advocate for this old, tried-and-true gold standard and run the Deep State’s new credit money system.
In 1987, he made his choice. He took over the top job at the Fed and faked it for the next 19 years.
Since 1978, we have had four different Fed chiefs. Some were smart. Some were honest. Only Paul Volcker was smart and honest.
Bernanke was honest… we believe. As near as we can tell, so is Janet Yellen. Both may mean well, but both are careful not to think out of the Deep State box.
Alan Greenspan was smart. But he is a scalawag. He knew all along that the system was corrupt and self-serving. He had explained it in essays he’d written prior to joining the Fed.
But he also knew he would never get his picture on the cover of TIME magazine if he told the truth.
(In 1999, Greenspan eventually got his mug on the cover. The magazine pictured him alongside then Treasury secretary Robert Rubin and his deputy, Larry Summers, under the headline “The Committee to Save the World” for their handling of the Asian financial crisis.)
It was power Greenspan wanted; he knew he would have to play the Deep State’s game to get it.
Now, Mr. Greenspan is 90 years old. Either he feels the cold downdraft of the beckoning grave… or he is simply forgetting to mumble.
In an interview in the wake of Britain’s decision to end its membership of the European Union, he had this to say:
If you look at human history, there are times where we thought that there was no inflation and everything was going fine. […] The oil prices have had a terrific impact on global inflation and [I] would not be surprised to see the next unexpected move to be on the inflation side. You don’t have it until it happens.
The former Fed chairman says he believes another debt crisis is inevitable. He believes it will lead to high levels of inflation. His solution? Gold:
Now if we went back on the gold standard and we adhered to the actual structure of the gold standard as it exists let’s say, prior to 1913, we’d be fine. Remember that the period 1870 to 1913 was one of the most aggressive periods economically that we’ve had in the U.S., and that was a golden period of the gold standard.
The Fed’s minutes from its last meeting reveal no intention to return to the gold standard. Instead, the Fed’s central planners want their photos on TIME, too.
They can’t give up their control of the nation’s money or risk a correction. It would be “prudent to wait for additional data” before raising rates, they say.
Mr. Greenspan might have said so, too… perhaps with a hidden, sly smile on his face.
We have been connecting dots; we want new readers to see what we see, so we can all look at some more dots together.
Like everything else in economics and the markets, credit is cyclical.
At the beginning of an expansion, people borrow more and more. Then, when they have borrowed too much, they cut back, they default, they trim their expenses… and they trim their debt.
The expansion phase – like the bull market on Wall Street that usually accompanies it – is a happy time. People feel richer and smarter; they feel their hair grow and their private parts swell.
Then comes a less happy time, full of blame and regret…
“You should never have bought that boat,” says the nervous wife.
“I told you we didn’t need that extra warehouse,” says the worried business partner.
“I thought a degree would increase my income,” says the college graduate, as he takes your order.
The EZ money is supposed to beget an asset boom… which is supposed to beget an economic boom… which is supposed to beget the wealth that will pay off the extravagant borrowing that the credit expansion begat.
“Higher stock prices will boost consumer wealth and help increase confidence, which will also spur spending,” said an earnest, but perhaps dim, Ben Bernanke in 2010.
“Increased spending will lead to higher incomes and profits that… will further support economic expansion.”
Six years later, all we see is a misbegotten credit bubble and $60 trillion more, worldwide, of debt.
To be continued…
Further Reading: When this $60 trillion credit bubble pops… it’ll be more devastating than anything America has ever seen. This crisis will not only hit stocks, but also your credit cards, checkbook, bank account… even the cash in your wallet.
Watch Bill’s warning now to understand and protect yourself from this looming economic collapse.
By Steve Sjuggerud, Editor, True Wealth Systems
I am unafraid…
We have incredible investing opportunities right now in U.S. stocks… U.S. real estate… commodities… emerging markets… You name it, I’m probably bullish on it.
How can we have so many great opportunities?
The short answer is FEAR. We are seven years into a great bull market in stocks… But investors are not at all acting “giddy” like you see at a market top.
At a market peak, investors have no fear. Based on that fact alone, we are not at the peak yet.
I am not afraid of the next 12-18 months in the financial markets. Our investing upside potential is far greater than people believe, in my opinion.
So what am I afraid of? Let me tell you…
I’m not afraid of the short run. It’s the long run that has me worried.
You see, our government is on an unsustainable path.
Two charts tell the story…
The first is a chart of the U.S. debt-to-GDP ratio.
Debt in the U.S. has been at manageable levels throughout history… with the exception of World War II. That was an extraordinary moment of borrowing – and we borrowed in excess of 100% of GDP. Take a look:
Today, the Congressional Budget Office projects that by 2032, our debt-to-GDP ratio will exceed that of World War II (under its “Alternative Fiscal Scenario”). Our debt-to-GDP ratio will hit 250% of GDP in less than 40 years.
Where is this increase in government borrowing coming from?
It isn’t from defense spending like it was during World War II. The increase in government spending is almost all on entitlements and the interest on the national debt.
In about 20 years, spending on entitlements (that’s Social Security and government health care programs) plus the interest on the national debt will eat up ALL government revenues.
It is truly shocking. Take a look:
That leaves no money to pay any government employees… no money for Homeland Security… no money to run the U.S. government.
As long as our debts rise slowly, nobody will do anything… until it’s too late.
THAT’S what I’m afraid of.
Fortunately, you and I can make a lot of money in our investments before that day arrives. We have some incredible upside potential in the near term, before the long-term problems stat to become a problem.
P.S. I’ve spent nearly a decade and more than $1.5 million figuring out the absolute best way to profit from trends. And what I’ve discovered is essentially a "Magic Number" for dozens of investments. These Magic Numbers tell me exactly when to buy – and when to sell – these investments for the largest profits possible.
I recently put together a presentation that explains the full details. If you want to know which assets are most likely to go up 100% or more in the coming months, click here.
Greenspan on Brexit, Inflation, and Gold
Alan Greenspan reckons we’re in the worst economic period in 30 years. And that Brexit was a “terrible mistake.” He also sees inflation coming and says gold is the only answer. [VIDEO]
Top Traders: “Do as I Say… Not as I Do”?
Behind closed doors, the top traders, investment banks, and hedge funds are using one simple strategy to make billions in profits every year… all while telling you it’s a bad idea.
Can the Fed Resist the Pull of Negative Yields?
Negative interest rates, whether policy rates or market rates, have done very little to help the world economy. But can the Fed hold out against the global trend toward subzero rates?
Today… readers weigh in on yesterday’s Diary – “Is the Whole World Moving Toward Trumpism?”
Is the whole world moving toward Trumpism! I could be wrong, but I would much prefer to move toward Trumpism than the Clinton Corruption Chronicles any day.— Jim L.
Of course Trump has chosen the right target with the wrong message!
All demagogues do, from Adolf Hitler on up. As if the ravages of the Depression and the Treaty of Versailles could be corrected by perpetrating the Holocaust!
Anyone who thinks that Trump would do something different just hasn’t been listening.– Dave H.
In trying to explain the Deep State in yesterday’s issue you stated, "We’ve mentioned this often. But we’ll do so again, for the benefit of new readers and Alzheimer’s victims."
I know you were attempting to be clever and funny but the fact is Alzheimer’s is a disease that has no cure and always ends in death. It just struck me as entirely inappropriate and unnecessary. Other than that, keep up the good work.— Gary P.
Please refresh my memory in the next Mailbag as to how John F. Kennedy challenged the Deep State.— Barbara W.
And finally some general praise for the Diary and Bonner & Partners:
Bill, I’m 80 with some medical problems and cannot afford to invest anything. But from your emails, and three of your other top newsletters, I can see what is going on in our country as well as the rest of the world.
Thanks for everything your people do.— John M.
In Case You Missed It…
Currency expert Jim Rickards has been giving interview after interview about his Brexit analysis.
But there’s one strategy he hasn’t shared on TV… and he says it’s his most profitable way to capitalize on Brexit. Read his research here.